What’s next for Redrow’s share price as full-year earnings loom?

With the Redrow share price down nearly 30% this year and housebuilders’ shares slumping, investors will be eyeing Wednesday’s full-year earnings. Despite this, Redrow’s interim update and full-year forecasts suggest the developer remains in robust health, though analysts will be looking for evidence of a slowdown and guidance for the following year.

With the Redrow [RDW.L] share price down 29.1% in the year to 9 September, and housebuilders’ shares slumping, investors will be eyeing the company’s full-year earnings report on Wednesday 14 September, particularly following news that HSBC research predicts house prices could drop as much as 15%.

Despite this gloomy market outlook, both Wales-based Redrow’s interim update in February and forecasts for Wednesday’s full-year figures suggest the developer remains in robust health. Nevertheless, investors and analysts alike will be watching intently for evidence of a slowdown and guidance for the month ahead. Analysts, meanwhile, remain bullish on Redrow stock.

Redrow’s share price plunged 8.21% intraday on Friday 2 September after HSBC’s downbeat report was published, causing the stock to close at a 52-week low of 450.31p that day. While it has since regained some of those losses to close at 488p on 9 September, Redrow shares are still down 29.1% since the start of 2022 and 13.6% in the past month.

Full-year revenue and EPS forecast to grow

Ahead of Redrow’s annual results, the consensus forecast of 13 analysts covering the stock is for earnings per share (EPS) of 93.63p, according to the Financial Times, compared with 73.6p a year earlier. Revenue is forecast to come in at £2.12bn, against £1.94bn in 2021, which itself was up 44.81% on 2020. And the FTSE 250 stock is expected to announce a dividend of 0.31p, which would be an increase of 27.76% on 2021.

In its interim report back in February, Redrow reported a year-over-year profit before tax rise of 17% to £203m, and an operating margin of 19.5%, with CEO Matthew Pratt saying “we expect to deliver a similar margin for the full year”. If Wednesday’s figures confirm this, it will mark a return to a “normalised margin 12 months ahead of previous guidance”, according to Pratt.

In the first six months, the group also announced record revenue of £1.05bn, up from £1.04bn in the prior year, as demand continued to remain robust. Earnings per share also rose 17% to 48.1p. The average private selling price was up 8% to £419,000.

Housebuilders face a challenging period

Since Redrow’s interim update, however, the macroeconomic environment has weakened markedly. Rising interest rates will continue to push up mortgage rates, while inflation cuts disposable income, and this is likely to see housing demand slide 20% over the next few months, say HSBC. The report also predicted average house prices could decline by 15% in London and 7.5% in the rest of the country, with new build homes forecast for a 5% fall.

Housebuilding stocks like Redrow have already had a difficult year so far: Barratt Developments [BDEV.L] is down 45.51% in the year to 9 September, while Berkeley Group [BKG.L] is down 27.8% over the same period. The HSBC report only added to developers’ share price woes: the turnaround in economic conditions leads the bank’s analysts to forecast housebuilders’ pre-tax earnings will decline by an average of 43% by 2024, compared with 2022.

What’s the analysts’ view on Redrow stock?

Despite the downbeat outlook for the housebuilding industry, analysts have maintained a consensus ‘buy’ recommendation on Redrow stock according to the FT, with seven ‘buy’, five ‘outperform’ and two ‘hold’ recommendations overall.

And further indicating this year’s declines leave value in Redrow’s share price at current levels, the 12 analysts offering a 12-month forecast with the FT anticipate the housebuilder’s share price overcoming wider economic issues, with a consensus median target of 782p, highlighting a potential upside on Redrow shares of 60.25% compared with last Friday’s closing price of 488p.